News
DFM faces correction amid investor uncertainty
Severe selling pressure yesterday dragged the Dubai Financial Market down 70.73 points, or 3.51 per cent, to a close of 1943.36.
Profit booking, which started last week after a very strong rally by the general index during the previous few weeks, has turned into a severe correction due to uncertainty and fears among retail investors and speculators, according to analysts.
Turnover declined sharply to 381 million shares worth a total of Dh513.8 million, compared with daily average turnover of Dh1.6 billion so far this month.
The market opened with strong fluctuations and tried to bounce back at the beginning of the session on very low turnover. But the index could not maintain its position in the green area and then strong selling pressure hit leading stocks, especially in the real estate and banking sectors, which had very negative impact.
Drake & Scull International (DSI) was the leading active stock by volume, while Emaar was the most active by value. The stocks declined by 3.09 and 4.44 per cent respectively. Other stocks in the real estate and construction sectors, including Arabtec and Union Properties, also retreated.
Banking heavyweights Dubai Islamic Bank and Emirtaes NBD slipped 4.06 and 4.89 per cent respectively. Though banking stocks were trading on low turnover they put deep pressure on the index. Other major movers included Shuaa Capital, which declined by 9.8 per cent to close at Dh1.38 as its dispute with Dubai Banking Group over the conversion of Dh1.5 billion of bonds into shares continued.
Deyaar retreated by 6.9 per cent to close at Dh0.81 after the bourse resumed trading in the stock. The company announced the resignation of its chairman Nasser Al Sheikh and said its board of directors would meet soon to ratify the resignation.
Analysts said the DFM was experiencing nervous reactions and selling pressure created by uncertainty over the recovery in the global and regional economies.
Analysts also highlighted the impact of the earnings season as investors were focusing on expectations and rumours about results for the second quarter. "We were expecting normal profit booking movements in the DFM last week after the market rallied sharply during the past two months," said Kefah Al Maharmah, General Manager of Aldar Securities and Bonds.
"However, profit booking movements have turned into a severe correction in the market since last Thursday. We saw selling pressure from retail investors and speculators due to uncertainty, which returned to dominate sentiment among investors."
He said the sharp decline in trade value was an important signal that longer term investors were maintaining their holdings in the market or waiting on the sidelines for a clearer market trend to emerge.
"The DFM index went through several intraday support levels during the past two sessions because of pressure from retail traders. This created uncertainty among larger investors. The index tried to go up at the beginning of the session but selling pressure dragged it down and investors preferred to wait before buying.
"We saw strong offers while buying was very low. Also there were strong price gaps in several stocks as some went down sharply, sometimes reaching their down limits."
Maharmah said the coming few sessions would be critical for the DFM's trend.
"The most critical point will be the trend at the beginning of the session. If the market manages to maintain the upward trend during the first hour of trading investors will be encouraged to buy and push the index up. Such a bounce back would be very important to improve sentiment among investors."
Amjad Bakir, Trading Manager at Mac Sharaf Securities, said the DFM might go down to its important support level at 1900 points before bouncing back to its previous high between 2100 and 2200 points.
"The DFM is expected to move sideways with a tendency to the down side in the short term," he added. "However, we expect the market will bounce back before the announcement of the Q2 results.
"Investors are still concerned about the outlook for the economy and uncertainty is dominating sentiment in the market. The DFM traded below its 14-day average for a second session, which gave bearish signals."
Arabtec likely to gain momentum
Arabtec fell 3.45 per cent to close at Dh2.80 after Al Mal Capital kept its rating for the stock at "perform".
Al Mal expects the stock to gain some momentum due to improved investor perceptions resulting from an expected marginal improvement in the results for the second quarter and the prospect of securing projects in Riyadh or Jeddah, especially with Emaar.
Al Mal expects the company's Q2 revenues to fall nine per cent to Dh2.07 billion compared with Q2 in 2008, but says: "While gross and net profit may rise seven to eight per cent in absolute terms, the margins might decline between 250-350bp."
However, Al Mal remains positive about Arabtec's prospects of achieving its targeted revenue for the year as it pushes ahead with aggressive expansion into Saudi Arbaia.
Profit booking, which started last week after a very strong rally by the general index during the previous few weeks, has turned into a severe correction due to uncertainty and fears among retail investors and speculators, according to analysts.
Turnover declined sharply to 381 million shares worth a total of Dh513.8 million, compared with daily average turnover of Dh1.6 billion so far this month.
The market opened with strong fluctuations and tried to bounce back at the beginning of the session on very low turnover. But the index could not maintain its position in the green area and then strong selling pressure hit leading stocks, especially in the real estate and banking sectors, which had very negative impact.
Drake & Scull International (DSI) was the leading active stock by volume, while Emaar was the most active by value. The stocks declined by 3.09 and 4.44 per cent respectively. Other stocks in the real estate and construction sectors, including Arabtec and Union Properties, also retreated.
Banking heavyweights Dubai Islamic Bank and Emirtaes NBD slipped 4.06 and 4.89 per cent respectively. Though banking stocks were trading on low turnover they put deep pressure on the index. Other major movers included Shuaa Capital, which declined by 9.8 per cent to close at Dh1.38 as its dispute with Dubai Banking Group over the conversion of Dh1.5 billion of bonds into shares continued.
Deyaar retreated by 6.9 per cent to close at Dh0.81 after the bourse resumed trading in the stock. The company announced the resignation of its chairman Nasser Al Sheikh and said its board of directors would meet soon to ratify the resignation.
Analysts said the DFM was experiencing nervous reactions and selling pressure created by uncertainty over the recovery in the global and regional economies.
Analysts also highlighted the impact of the earnings season as investors were focusing on expectations and rumours about results for the second quarter. "We were expecting normal profit booking movements in the DFM last week after the market rallied sharply during the past two months," said Kefah Al Maharmah, General Manager of Aldar Securities and Bonds.
"However, profit booking movements have turned into a severe correction in the market since last Thursday. We saw selling pressure from retail investors and speculators due to uncertainty, which returned to dominate sentiment among investors."
He said the sharp decline in trade value was an important signal that longer term investors were maintaining their holdings in the market or waiting on the sidelines for a clearer market trend to emerge.
"The DFM index went through several intraday support levels during the past two sessions because of pressure from retail traders. This created uncertainty among larger investors. The index tried to go up at the beginning of the session but selling pressure dragged it down and investors preferred to wait before buying.
"We saw strong offers while buying was very low. Also there were strong price gaps in several stocks as some went down sharply, sometimes reaching their down limits."
Maharmah said the coming few sessions would be critical for the DFM's trend.
"The most critical point will be the trend at the beginning of the session. If the market manages to maintain the upward trend during the first hour of trading investors will be encouraged to buy and push the index up. Such a bounce back would be very important to improve sentiment among investors."
Amjad Bakir, Trading Manager at Mac Sharaf Securities, said the DFM might go down to its important support level at 1900 points before bouncing back to its previous high between 2100 and 2200 points.
"The DFM is expected to move sideways with a tendency to the down side in the short term," he added. "However, we expect the market will bounce back before the announcement of the Q2 results.
"Investors are still concerned about the outlook for the economy and uncertainty is dominating sentiment in the market. The DFM traded below its 14-day average for a second session, which gave bearish signals."
Arabtec likely to gain momentum
Arabtec fell 3.45 per cent to close at Dh2.80 after Al Mal Capital kept its rating for the stock at "perform".
Al Mal expects the stock to gain some momentum due to improved investor perceptions resulting from an expected marginal improvement in the results for the second quarter and the prospect of securing projects in Riyadh or Jeddah, especially with Emaar.
Al Mal expects the company's Q2 revenues to fall nine per cent to Dh2.07 billion compared with Q2 in 2008, but says: "While gross and net profit may rise seven to eight per cent in absolute terms, the margins might decline between 250-350bp."
However, Al Mal remains positive about Arabtec's prospects of achieving its targeted revenue for the year as it pushes ahead with aggressive expansion into Saudi Arbaia.
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